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After trying and failing all week, they managed to push the Dow Jones Industrial Average above the 16,000 level at the closing bell thanks to indications from the Bank of Japan that more cheap money stimulus could be forthcoming — despite the fact that its positive assessment of the Japanese economy remains unchanged. A liquidity injection by the People’s Bank of China overnight (albeit at a higher interest rate) also helped.

While all looks tranquil on the surface, it wasn’t a “clean” breakout: There are a number of concerns as the market looks increasingly vulnerable here. Call me cynical, but Dow 16,000 looks like a ploy by insiders to dump shares on retail investors ahead of a fall. CEOs and professional traders have had a strong selling bias for months according to data on share repurchases vs. issuances and hedging activity in the futures market.

Here are three problems with Dow 16,000, and three charts to illustrate the point.

It’s All About Financial Stocks

Click to Enlarge The market has been ramping during the past few weeks with a narrowing base of support, and fewer and fewer stocks participating to the upside. Consider that only 62.7% of the stocks in the New York Stock Exchange are above their 50-day moving averages. That’s down from 85.2% in mid-October, 75.8% at the September peak, 72.7% during the July topping pattern, and 80.4% at the May peak.

Incredible.

Most of the lift for the Dow Jones is coming from its financial components. Compare the rise in Bank of America (BAC) to the breakdown underway in Caterpillar (CAT).

If all is well in the global economy, both should be rising in unison.

Extreme Sentiment

Click to Enlarge “Dumb money” sentiment is also off the charts, while the “smart money” investors keep pulling back.

Look at this: The percentage of assets in Rydex funds that are in money market accounts has dropped below the lows seen as the last bull market was peaking in 2007.

Or this: NYSE margin balances have surged to levels not seen since the dot-com bubble was peaking in 2000. That’s unsustainable.

To sum it all up, just look at the chart above. The percentage of bears in the Investors Intelligence Survey has set a new record low — falling below any point since the late 1980s.

More Cheap Money?

Click to Enlarge Investors only seem to care about one thing and one thing only: The ongoing flow of cheap money stimulus from the major central banks.

You can see this in the data. Since the bear market ended in early 2009 — when QE1 was launched and Ben Bernanke started subsidizing government borrowing — the relationship between the S&P 500 and the Fed’s monetary base is an incredible 87%.

That is, changes in the Fed’s money supply explain 87% of the changes in the stock market. In the four years leading up to this, the relationship was just 36%.

The trouble is, the latest Federal Reserve meeting minutes point to a tapering of the ongoing $85 billion-a-month QE3 program “in coming months,” with officials weighing tapering before the economic outlook improves.

The risk is that the Fed is losing control of the bond market as 10-year Treasury yields push back toward 3% — the level that spooked the markets in May and caused the Fed to table the taper discussion. High-yield corporate bonds also are under pressure, suggesting the credit markets are less than ebullient right now.

What Now?

I continue to recommend investors view the Dow 16,000 milestone with a healthy level of skepticism. This feels a lot like the setup heading into the Dow Jones’ charge on the 15,500 level back in May.

Sure, it was a less meaningful, non-round-number threshold. But the context in terms of sentiment, breadth, and bond market conditions suggests downside risks are growing.

As of this writing, Anthony Mirhaydari did not hold a position in any of the aforementioned securities.